Coles goes cold on frequent flyer scheme

By Julian Lee

13 May 2009 — 12:00am

THE race between the leading supermarket chains to collect data on Australian shoppers is to begin in earnest, with Coles set to review its FlyBuys loyalty program, with a view to switching it to instant cash rewards.

Coles has signalled it wants to ditch the frequent-flyer-points program to allow shoppers to accrue points and get discounts off their shopping, Coles marketing director Joe Blundell said.

Coles is lining up a new scheme in which shoppers can earn points that can be redeemed on supermarket goods.Credit:Sasha Woolley

At the same time, Woolworths is close to launching its tie-up with the Qantas Frequent Flyer program, allowing users of Woolworths' 4.5 million Everyday Rewards cards to earn points when they shop for groceries, fuel, liquor and electronics across the group's stores.

Mr Blundell, who joined Coles from British supermarket chain Asda a year ago, said: "We have done a lot of research and the first thing they (customers) want is the closest thing to a cash reward as possible Flight rewards are lower down the list of priorities."

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The economics of earning points to redeem for a flight did not stack up  and only 0.5 per cent of customers redeemed their points for flights, compared to 82 per cent for cash or a cash-equivalent, he said.

"We think we would be better focusing on value than covering a flights route," he said. "We are looking at ways of what we can do to make FlyBuys better  it is definitely on the radar."

This week, Coles launched a 12-week promotion for FlyBuys cardholders to earn points in return for Coles gift cards. Based on a $200 weekly spend, shoppers would get a $12 gift card at the end of the promotion, or a $60 card if they bought at least five of the 150 products that carry bonus points.

FlyBuys is Australia's first and largest loyalty scheme with more than 8 million members. It is jointly owned by Coles' parent Wesfarmers and National Australia Bank, and run by Melbourne-based joint venture Loyalty Pacific.

Its general manager, Phil Hawkins, confirmed the trend among cardholders to redeem their points for gift cards. "Flights are not the most popular rewards type and that has been the trend for some time  but especially so in the current economic climate," he said.

FlyBuys has come under criticism for the length of time it takes to accumulate points  shoppers must spend $5 to get one point  and the fact that points expire after three years, which critics say is how long it takes to build up a tally worth enough to redeem.

Provided they were not using a card that earns extra points, such as the Coles Source card or a NAB credit card, it would take a household that spent $300 a week on groceries nearly 2½ years to earn enough points to get three bottles of Banrock Station wine, retailing for a total of about $60.

A cardholder would need to accumulate 22,500 points for a flight from Sydney to Brisbane, which would require $721 a week to be spent on groceries for three years. While Loyalty Pacific captures data such as where and when cardholders have shopped, their tally of points and what they redeem them for, Coles retains data on what they bought, down to a stock-keeping unit level, such as brand name and size.

Coles said it intends to investigate that information more, so that it can tailor offers to particular groups of customers based on their purchasing history  something that Woolworths is already doing with its 12-month-old loyalty card, sending emails to people who have registered their personal details.

Some loyalty card specialists are sceptical as to whether Coles is serious about a loyalty program, especially as the Wesfarmers strategy is centred on delivering "everyday low prices".

"You don't need to know who your customer is if all you are doing is beating everyone on price," said one specialist who wished to remain anonymous.

Strategic brand expert Nick Foley said that up until 2004, Coles had a shareholder discount program that entitled holders to special deals in stores that were part of the Coles Myer empire.

He said that if the flight component disappears, it presents a branding issue for FlyBuys.

"What they have is an offer that becomes too complex for the consumer to understand  it's oxymoronic if you remove the flights," said Mr Foley, managing director of Landor Associates.

"They need to come up with a new brand for a loyalty offer that is easy to understand and easy to redeem. I predict we are going to see the re-emergence of the coupon."

A Woolworths spokeswoman said holders of its Everyday Rewards card would not to have to spend as much to accumulate points.